Remains in the red due to rising costs
- We deem the 9MFY10/22 core net loss of RM16.5m as better than our expectations and Bloomberg consensus FY10/22 estimate.
- The earnings outperformance was mainly due to higher-than-expected revenue and larger-than-expected GP margin on a better product mix.
- Maintain Reduce with an unchanged TP of RM0.33 (1.0x P/NTA). However, we retain our EPS forecasts pending the results briefing on 28 Sep 2022.
3QFY10/22: Tenth consecutive loss-making quarter with RM0.6m
Mynews Holdings Berhad’s (Mynews) 3QFY10/22 revenue increased by 81.3% yoy to RM170.2m, mainly driven by a higher total store count of 573 (+11.3% yoy or +58 yoy and +15 qoq, including 16 new CU outlets during the quarter), higher footfall and longer operating hours as well as the Hari Raya festive season during the quarter. GP margin improved to 35.6% (+5.6% pts yoy) on wider margins from CU operations and better control over inventory wastages. Nonetheless, the higher revenue growth was more than offset by the increase in operating costs (+48.6% yoy), finance costs (+39.9% yoy) and depreciation (+38.3% yoy) due to its ongoing aggressive CU expansion plan. Also, its food processing centre (FPC) remained in losses at RM1.9m in 3Q22 vs. 2Q22 loss of RM2.5m. As a result, Mynews posted a core net loss (CNL) of RM0.6m, marking its tenth consecutive lossmaking quarter.
9MFY10/22 core net loss of RM16.5m was better than expected
9MFY22 CNL of RM16.5m was narrower than our and Bloomberg consensus expectations, accounting for 55% and 66% of FY22 full-year loss forecasts, respectively. The outperformance was mainly due to a higher-than-expected expansion in EBITDA margin to 8.5% (+4.5% pts yoy), owing to revenue (+52.0% yoy) increasing at a faster pace than operating costs (+40.2% yoy). Nonetheless, the higher EBITDA of RM38.4m (+224.6% yoy) was offset by depreciation expenses, which rose by 21.5% to RM52.0m and higher finance costs (+28.9% yoy) to expand its CU operations. YTD, the group currently has 462 myNEWS outlets, 124 CU stores and 13 WHSmith stores.
Labour shortage and gestation of CU remain key risks
While we believe the near breakeven 3Q22 results of -RM0.6m was mainly attributable to higher-than-expected GP margin on a more favourable product mix and recovery in sales from its existing 462 myNEWS stores, near-term risks remain that could hamper Mynews’s turnaround plan. These include prolonged gestation of its CU operations, lower consumer spending power from 4QCY22 onwards, and persistent labour shortages that could lead to lower utilisation rate at its FPC, resulting in delayed profitability in FY24F.
Maintain Reduce with an unchanged TP of RM0.33
We retain our RM0.33 TP (1.0x P/NTA, 2 s.d. below its 5-year mean of 2.9x), and core EPS forecasts pending Mynews’s results briefing on 28 Sep 2022. The P/NTA discount is to reflect the intensifying competition in the CVS space, potentially weaker consumer discretionary spending from 4QCY22 onwards and weakening business fundamentals.
